The actions of the Techtopus would have had Karl Marx choking on his cornflakes

By Tim Worstall , written on March 24, 2014

From The News Desk

The actions of the Techtopus, as detailed here at Pando by Mark Ames, would have had Marx choking on his cornflakes. Or at least screaming "I told you! I told you this would happen!" For this is exactly what he meant by "monopoly capitalism" -- and was the end state of capitalism that he wanted so desperately to warn us against.

To recap Ames: various tech bosses colluded in making sure that they didn't try to poach staff from each other. To the point that at least one of them, Eric Schmidt, said that they wouldn't even accept people from certain companies who weren't poached but had tried to reach Google under their own steam. This is clearly not conducive to rising incomes for those who would parlay competition for their services into a higher paycheck. It's also illegal.

Marx's explanation of why it's such a bad idea was closely linked with that famous idea of the reserve army of the unemployed. If all you need is homogenous labour then having some group of destitute people around without jobs means that you never need to raise the workers wages, whatever level of profit you're making. If anyone starts to agitate for higher wages, better conditions or even a five minute toilet break once a day, anything at all that will cut into profits, you can simply fire them and take on some of that reserve army. As Marx went on to point out, this calculation changes markedly if there are no unemployed people about. You can't fire your bolshie workers, because there aren't any others to replace them with. So, you've got to negotiate. And you'll also find that the other capitalists are in the same position: They've got to negotiate with their own workforces.

It's worth noting something important about what determines wages here. It's not that you get paid what you're worth. You also don't get paid your marginal productivity (although it might end up that you do). What actually determines your compensation package is what are other people willing to pay you. Your current employer obviously has to offer more than your alternatives (and alternatives in every sense, hours, conditions, vacation, pay, the whole schlemiel) otherwise you'd be off over there.

Given this it is the competition between the various capitalists for the profits they can make by employing labour, that leads to a generally rising standard of living for us peons. And given that this is the point of the economy -- a generally rising standard of living for each and every schmuck -- this is why we like there being that competition among the capitalists.

Marx warned, though, that the capitalists might cooperate, and he called this monopoly capitalism.  There is a certain irony here in that Marx was insisting that it would be free labour markets that prevented this from happening. Ironic given the contemporary left's distaste for markets themselves. Another such irony is that the only place where this happened entirely was in Stalinist Russia, where national wages were deliberately fixed in order to raise the returns to capital.

We today wouldn't call this a monopoly: that word means single producer, single provider of something. We use "monopsonist" to describe a single purchaser of something but this was unavailable to Marx, being coined some time after his death. In more detail, given that the tech companies are accused of collaborating to act rather like a single purchaser we would call this oligopsonistic. (Yes, sorry, economic jargon can be just as ugly as any other professional jargon.)

But Marx was against such collusion, precisely because it prevented the workers' wages from rising as a result of competition for their services. And we're still against it today for exactly the same reason.

We can also take a more Hayekian view of the same problem. Start with Hayek's point that the only calculating engine we've got to make sense of the economy and the market is that market itself. We can't plan it: one factoid* is that at any moment there are one billion products for sale in Manhattan. That's one billion types of things, not one billion things themselves. We also don't know what is the utility function that we want to optimise: the country has 300 million people, so there's 300 million such utility functions. And a brass, 1 inch, 3/8ths, reverse thread screw in Manhattan is not the same as one in Houston or LA. So we've 300 million unknown utility functions, one billion products and some number (50? 300? Who knows?) of geographies that we've got to run our planning program over. In something approaching real time too.

No, it's not going to work is it? So, the market and the price system it is then. Which is where we start to get very pissed indeed with people who start sticking sticks into the spokes of that system. Imagine, just as an entirely made up example, some group of people conspired in a manner that artificially reduces the wages of tech engineers. Okay, returns to capital for those employing tech engineers rises, how lovely for the capitalists. But what else happens? Clearly, the tech engineers themselves are getting a worse deal than they would have done in a free labour market. But there's much more to it than that. The failure of wages to rise means that fewer people with the requisite skills end up doing tech engineering: they're stuck being quants on Wall Street perhaps. And fewer people will respond to those price incentives and acquire those requisite tech skills. We thus have talent, twice, being wasted doing less productive things than being tech engineers. The definition of labour being used to do something less productive than it could be doing is "making us all poorer."

This effect ripples right out through the economy as well. Five-hundred potential engineers not moving to the Valley means, in the end, 500 hamburger slingers not moving one notch up the labour scale as the gaps haven't appeared above them. Further, there will be great pressure by the capitalists to find some other source of labour to fill their offices. Perhaps agitation to allow in some number of foreigners who will do the job instead of those Americans who have not been attracted by the capped incomes.

Oh, wait, this is what has been happening, isn't it?

In the end the point is that if we are going to have a market economy then it's actually got to be a market economy. And that means coming down like a tonne of bricks on those who collude to try to fix prices. Yes, even if it's the fixing of the incomes of one of the best paid parts of the society already.

I don't know what the fines are going to be like in this case, but my instinctive assumption is that they won't be anything like high enough.

*ie, something fun that may or may not be true but is at least illustrative

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[Illustration by Hallie Bateman for Pando]